Cost Efficiency Evaluation of Thermal Power Plants in Bangladesh Using a Two-Stage DEA Model

The power sector in Bangladesh is based on fossil fuel based electricity generation. The recent increase in generation capacity in the country has been through the addition of power plants using higher cost imported fossil fuels, which have increased the overall cost of electricity. In this study, we aim to compare the cost efficiencies of thermal power plants in Bangladesh in order to identify sources of inefficiencies. We use data envelopment analysis, followed by Tobit regression. We separately analyze two samples comprising 30 baseload plants and 91 peaking plants for the financial year 2019–2020. We find that base load plants have higher efficiencies in general, and have lower slacks in input factors, compared to peaking plants. Fuel costs and fixed costs have the highest slacks whereas operations and maintenance costs and installed capacity have low slacks. It is also shown that the type of fuel in the power plant is the most important determinant of its cost efficiency, among both base load and peaking plants. The ownership of the plant or the technology has no significant effect. These findings have policy implications for the future expansion of the power sector and replacement of inefficient power plants in the energy transition process.